Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Examining October – Weekly Update for October 22, 2018

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Stock performance was mixed last week as investors considered the impact of interest rates, international affairs and corporate earnings. The S&P 500 gained 0.02%, and the Dow added 0.41% to post its first weekly gains in October. The NASDAQ declined 0.64% and extended its losing streak. International stocks in the MSCI EAFE dropped by 0.08%.

While the final weekly results showed relatively little growth or loss, the week included some volatility. So far, domestic indexes have struggled this month. As of October 19, the S&P 500 and Dow had each lost more than 3% for the month, and the NASDAQ was down 7%.

As we have often discussed in our market updates, volatility may feel uncomfortable, but market fluctuations are normal. That perspective becomes especially relevant in October, which is considered the most volatile month for markets.  

Examining October History

Historical performance can’t predict future results. However, we do believe that understanding what makes October unique can help provide context for the current environment.  

  • Significant market events
    For generations, many of the most significant market events have taken place in October, including the crash of 1929 and multiple large drops in 2008. In addition, last Friday, October 19, marked the 31st anniversary of the “Bloody Monday” market crash. On that date in 1987, the S&P 500 lost over 20% of its value
  • Higher than normal volatility
    Since 1950, the S&P 500 has experienced more 1% moves in October than any other month. The month has also been the Dow’s most volatile since its beginning in 1896.
  • Surprising performance
    Despite the large events and high volatility that October can bring, its results may be stronger than expected. For the past 20 years, October has had the strongest performance of any month.

Exactly how this month will end remains to be seen, as we still have a few trading days left. But we hope that understanding how much markets often move in October will help you ride out any future volatility with more confidence. Of course, we’re also here to provide any answers or information you need, so contact us any time.

ECONOMIC CALENDAR

Wednesday: New Home Sales
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Consumer Sentiment

October 2018 Market Update Video

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We just completed the 3rd quarter of 2018 and are now entering the year’s final stretch. Between July and September, the S&P 500, Dow, and NASDAQ all gained at least 7%. In fact, the S&P 500 had its best quarter since 2013. However, last month’s performance contributed little to these strong gains.

In this month’s video, I’ll discuss some of the major headlines that influenced markets in September. I will also provide insight into what these developments could mean for you as an investor.

As always, if you have any questions or concerns about your financial situation after watching this video, you can give us a call at (419) 425-2400, or send us an email at hello@hzcapital.com. We would be happy to talk.

New Records and Changes – Weekly Update for September 24, 2018

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Last week brought new tariffs and data, and another look at changes coming to equity classifications. Overall, the S&P 500 gained 0.85% and the Dow was up 2.25%, while the NASDAQ dropped 0.29%. International stocks in the MSCI EAFE had sizable growth, posting a 2.89% increase.

A Look Back: Last Week’s Tariffs and Mixed Housing Data

For months, fears of a global trade war have dominated headlines. Last week, China and the U.S. launched new tariffs on each other’s products, but the latest round of this trade skirmish had an interesting effect. Rather than feeling concerned, both analysts and investors interpreted the tariffs to be lower than what they expected. As concerns about the global trade war calmed, both the S&P 500 and Dow reached new record highs.

In addition, we received some important economic information last week, including key updates on the housing industry. While the economy and markets are performing well, recent data indicates that the housing market isn’t keeping up. The data revealed:

A Look Ahead: This Week’s Global Industry Classification Standard (GICS) Update

Since 1999, the GICS has been classifying stocks based on their sectors and industries, including most of the world’s equities.

As of Monday, the S&P 500 has adjusted its sectors to change telecom into communications services and moved several big stocks into new classifications. This move is the largest GICS change since 1999 and is partly an attempt to reduce tech stocks’ weight in the markets. As technology companies have grown in the past few years, they have come to represent 26% of the S&P 500. Some experts believe that is an unbalanced level and allows tech to have too much influence on the markets.

The GICS reclassification affects many notable companies, including Facebook, Netflix, Alphabet, and Twitter. They all now join the new communications services sector. This sector name change may not actually alter the sway that technology companies have on the markets, but it will likely have other effects on investors. In the near term, volatility may increase as stocks move to new industries and fund managers adjust their holdings.

Many factors determine the reclassification’s specific effects on individual investors, so if you have questions about your portfolio, please let us know. We want to ensure you understand what you hold—and why—and how we are helping you adapt to both short- and long-term changes. If you would like guidance on any of the details we’ve shared today, we are always ready to help.

ECONOMIC CALENDAR

Tuesday: Consumer Confidence

Wednesday: New Home Sales, FOMC Meeting Announcement

Thursday: Durable Goods Orders, GDP, Jobless Claims

Friday: Personal Income and Outlays, Consumer Sentiment

Stocks Up as Milestone Passes – Weekly Update for September 17, 2018

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Last week, the East Coast prepared for Hurricane Florence, which roared through the Carolinas and Georgia. As investors kept their eyes on the weather and its potential for destruction, estimates emerged of up to $27 billion in hurricane damage. This potential for damage contributed to insurance companies in the S&P 500 declining last week. While the hurricane likely won’t have a large effect on our economy, its destruction could influence data for months to come.

Meanwhile, last week brought another milestone in our economy: the 10th anniversary of Lehman Brothers’ bankruptcy.

For 158 years, the Wall Street firm weathered the markets’ changes. By 2008, however, various challenges, including excessive risk taking, led to its demise. The firm’s unexpected bankruptcy announcement shocked investors and triggered market panic, leading what was a simmering financial crisis to become the Great Recession. A decade later, the markets are on more solid ground, and banks hold more capital and have stronger regulation. While some professionals or analysts warn of a potential looming recession, current market performance and economic data indicate just how far we’ve come.

Let’s examine last week’s data to understand examples of where we are today: Domestic indexes rebounded to post healthy gains for the week, with the S&P 500 adding 1.16%, the Dow gaining 0.92%, and the NASDAQ increasing 1.36%. International stocks in the MSCI EAFE were also up, gaining 1.76%.

In addition, we received the following updates, which support a picture of a more robust economy:

  • Consumer sentiment jumped: The September reading was at its 2nd-highest point since 2004. The data reveals that consumers expect the economy to grow and create more jobs.
  • Retail sales stalled but are primed for growth: Spending barely increased in August, after months of strong growth. However, analysts believe this data is “a blip” rather than an emerging trend, as tax cuts and a healthy labor market leave Americans with money in their pockets.
  • Industrial production rose for the 3rd-straight month: Auto manufacturing contributed to higher than expected industrial production in August. For now, trade tensions have not yet hurt this sector.  

These data reports may not show blockbuster growth, but together they indicate our economy is doing well. In fact, they were strong enough to lead many economists and analysts to increase their projections of how fast the economy expanded during the 3rd quarter.

Looking back, the markets have come far from where they were 10 years ago. But risks will always remain, as Hurricane Florence and Lehman Brothers remind us. Today and in the future, we are here to help you understand where you are and plan for whatever may lie ahead.

Also, for those affected by the hurricane, we’re ready to support your recovery and provide the financial guidance you seek.

ECONOMIC CALENDAR

Tuesday: Housing Market Index
Wednesday: Housing Starts
Thursday: Existing Home Sales, Jobless Claims

A Shaky Start to September – Weekly Update for September 10, 2018

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Domestic markets fell last week due to negative trade news and declining tech stocks, with the S&P 500 and Dow both breaking their multi-week winning streaks. Meanwhile, the NASDAQ posted losses for 4 days in a row for the first time since April and experienced its worst September start since 2008. Overall, the S&P 500 lost 1.03%, the Dow dropped 0.19%, and the NASDAQ gave back 2.55% for the week. International stocks in the MSCI EAFE also declined, losing 2.89%.

The Cboe Volatility Index (VIX), which can help gauge market fears, increased 15.8% last week. This increase matches what often occurs during September, when volatility returns after waning during the summer months. In fact, since 2007, volatility has been above average in September.

Of course, the change from one month or season to another isn’t enough to trigger market losses and rising volatility. Let’s analyze what drove these experiences last week.

  • Trade tension escalated between the U.S. and China.
    The U.S. is getting closer to resolving trade issues with Mexico, Canada, and the European Union⎯and the countries may unite against China’s trade approach. As a result, the likelihood of calming the trade dispute between the U.S. and China is fading. Last week, President Trump said he was prepared to add tariffs to another $267 billion in Chinese goods. These tariffs would be in addition to the $200 billion that may launch soon, which one expert said could reduce the S&P 500 by 5%.
  • Tech stocks dropped.
    Last week, the technology sector declined by 2.9%. Tech has performed better than any other sector this year and has been a market leader for 3 years. But concerns about increasing regulation—with a focus on social media companies—weighed on investors’ minds last week.
  • Wage growth increased.
    The latest jobs report surpassed expectations, with the economy adding 201,000 jobs in August. Year-over-year wage growth also rose more than expected and hit its fastest pace since 2009. This wage increase contributed to stock losses, because it could mean that 2018 will have 2 additional interest rate increases⎯with more on the horizon for 2019.

Last week certainly provided data and headlines for investors to digest. But the job market, economic fundamentals, and market remain strong. For the moment, we’ll continue to review the data we receive and seek new ways to help you prepare for what lies ahead.

ECONOMIC CALENDAR

Tuesday: JOLTS
Thursday: CPI, Jobless Claims
Friday: Retail Sales, Industrial Production, Consumer Sentiment

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